MNI POLICY: ECB Could Issue Digital Liabilities, Mersch Says

--Technology Could Make Financial Regulation More Global

By Luke Heighton

     FRANKFURT(MNI) - The ECB may one day issue liabilities 'in digital form',

as it seeks to play a proactive role in shaping the global digital economy, a

member of the bank's executive council suggested on Tuesday.

     Speaking at a seminar in Thailand, Yves Mersch said technological change

had implications for the transmission mechanisms of monetary policy.

     Here are main points from his remarks:

     --The ECB will have to consider the extent to which it issues digital

liabilities and whether only to banks, or to non-banks as well.

     "The consequences are quite different, and we will have to look at it quite

carefully also in terms of efficiency of implementing monetary policy, because

that is finally what we have as a mandate," Mersch said.

     --Mersch said he was sceptical of the idea of using an estimate of a

"neutral" or "equilibrium" rate of interest to set interest rates, but that

policy makers would nonetheless have to take into account any signs that

technological progress or efficiency gains were bringing them lower.

     --"ENTITY-BASED" FINANCIAL SUPERVISION

     --The ability of technology to provide financial services across borders

might prompt a shift from supervision focussed on entities, such as banks and

hedge funds, to "content-based supervision."

     "But it is clear that the technology, which inherently denies the existence

of borders and frontiers, will best be also addressed from a regulatory point of

view at the global level."

     --The financial system's spending on cyber-resilience is still "far from

sufficient" compared to that spent on mitigating risk.

     --Proposals to replace cash with state-managed currencies often have

ulterior motivations, sometimes linked to eurosceptic politics.

     --Cryptocurrencies are a speculative financial asset at best, and their

backers have been unable to convert them into efficient means of payment in

competition with central bank-backed money. Currently worth a total $200

billion, they represent no threat to financial stability.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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